Appellant liable for service tax on royalty charges under Intellectual Property Rights service

The appellant was found liable to pay service tax on royalty charges under "Intellectual Property Rights" service from 18-4-2006. The continuous payment of royalty indicated an ongoing technical know-how transfer, justifying the imposition of service tax. Penalties under Sections 76 and 78 were deemed inapplicable due to lack of evidence of intent to evade payment or collection of service tax. However, a penalty under Section 77 was upheld. The appellant was ordered to pay service tax and interest on royalty payments from the specified date, modifying the Lower Adjudicating Authority's decision accordingly.

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Issues:
- Liability to pay service tax on royalty charges paid to foreign collaborator under "Intellectual Property Rights" service
- Applicability of service tax from a specific date
- Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994

Analysis:
1. Liability to pay service tax on royalty charges:
The appellant contended that due to a permanent transfer of technology, the levy of service tax under "Intellectual Property Right Services" should not apply. They argued that as there was a sale and not a service, no service tax should be levied. However, the records showed that the appellant had been consistently paying royalty since 1-2-1995, while the tax on Intellectual Property Right Service was introduced later. The continuous payment of royalty indicated ongoing technical know-how transfer, justifying the liability to pay service tax under IPR Service.

2. Applicability of service tax from a specific date:
The appellant claimed that if liable, they should pay service tax from 18-4-2006. Citing a Delhi High Court judgment, it was noted that the liability for service tax could be limited to a specific period. The Bombay High Court's decision emphasized that the enactment of Section 66A in 2006 authorized the levy of service tax on recipients of taxable services from abroad. Following these precedents, it was established that the appellant was liable to pay service tax on royalty charges from 18-4-2006.

3. Imposition of penalties under Sections 76, 77, and 78:
The Lower Adjudicating Authority imposed penalties, but the absence of discussions on an intention to evade payment of duty rendered penalty under Section 78 inapplicable. Moreover, since there was no evidence of the appellant collecting or paying service tax to the provider, penalty under Section 76 was deemed not applicable. However, the penalty imposed under Section 77 was found to be sustainable based on the circumstances. Consequently, the appellant was held liable to pay service tax along with interest on royalty payments from 18-4-2006, and the Lower Adjudicating Authority's order was modified accordingly, disposing of the appeal on these terms.

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